Peak Oil Prices?

Our oil future?

Oil prices are currently being pushed up by uncertainty about supply from the Middle East. Well before that crisis, Deutsche Bank was predicting $175/barrel oil five years from now. Predicting future oil prices is a tricky venture, and the track record for past predictions has been mixed.

The two factors that foretell price increases over the long-term are the exhaustion of cheap, easily accessible sources of oil; and increased demand as China and India get into the Auto Age. Peak oil advocates think that the total supply may actually start decreasing, but in any event, new oil finds are likely to be more expensive. On the other hand, higher prices will push down car demand to some extent and will provide an impetus for non-gas cars and higher gas efficiency. Other key factors are politics (will the Middle East become even less stable?), expectations (will oil producers reduce current production in expectation of higher future prices?), and market imperfections (how strong will OPEC be?). It’s a pretty daunting task to put all of this together and predict the prices of oil ten or twenty or forty years down the road.

I don’t pretend to be an expert in oil economics, but it seems to me that it would be prudent for our society to hedge against the possibility of much higher oil prices by investing in alternative types of vehicles such as electric vehicles and natural-gas vehicles, and by considering alternatives to private vehicles such as trains. That’s entirely putting aside the issue of climate change, or the other possible environmental benefits of reducing gasoline consumption such as lower NOx emissions.

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Reader Comments

You won’t see anything happening with switching us off oil for a while. In 50 years we were able to take computers from things you couldn’t fit into one room to things that sat in your lap (with a thousand times the computational power). In the past 100 or so years we haven’t been able to come up with a viable alternative to the gasoline engine? Give me a break. Shell sponsors an engineering competition where one of the concept cars got something like 3k kilometers off of the “equivalent” of 1 litre of gasoline (from their website, don’t know what that equivalent thing means). But for some reason it’s halfway to impossible to make a car that can go 50 miles on a gallon? Until you get individual people to look at regulation of the automobile industry to force fuel efficiency standards (or, gasp, even the development of a different kind of propulsion system) less as a matter of “big government controlling business” and more as a matter of “health and human safety” you won’t see these guys move on anything. Remember how much Nader at to squeeze these guys’ nuts to even get them to put seatbelts in their machines. The car thing is really the kicker I think. Americans are obsessed with cars. Get them to think about what they’re driving and it’ll get them to start thinking about everything else we should start switching off of oil.